Time-Varying Phillips Curves

Joseph Vavra

No 19790, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A growing theoretical literature argues that aggregate price flexibility and the inflation-output tradeoff faced by central banks should rise with microeconomic price change dispersion. However, there is little empirical work testing this prediction. I fill this gap by estimating time-varying forward looking New-Keynesian Phillips Curves (NKPC). I reject a NKPC with constant inflation-output tradeoff in favor of a slope that increases with microeconomic volatility. In contrast, there is no evidence that the inflation-output tradeoff varies with aggregate volatility or the business cycle more generally. Furthermore, I show that greater volatility does not affect price flexibility purely through increases in frequency.

JEL-codes: E10 E30 E31 E50 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-mac
Note: EFG ME
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Citations: View citations in EconPapers (8)

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